EXECUTIVE SUMMARY

The purpose of the audit is to add value to the office by

determining the adequacy, effectiveness and efficiency of existing
procedures to improve its operations. The internal audit team
performed an operational audit of City Budget Office of Butuan.
The objectives of the audit are to: (a) understand established
organizational policies, procedures and operational flow; (b) determine
whether actual practices comply with office-wide established policies
procedures

and

operational

flow;

of

operations;

and

effectiveness

(c)
(d)

assess

efficiency

recommend

actions

and
for

improvement.
The audit was based on the standards mandated by the
International Standards for the Professional Practice of Internal
Auditing. To achieve these, the auditors relied on the information
gathered and presented to the audit team about the company.
The auditors relied on direct observations of the daily operations
in the office, inquiry with the Acting City Budget Officer, Head of every
Division and their subordinates and also the walk-through test
conducted.
The findings of the audit are: (a) Inappropriate Segregation of
Duties; (b) Information System Discrepancies; and (c) Excess of
Authority of Signatories and the auditors recommend that the client
1 | Page

make an office manual that specifies actual work in the workplace, and
to hire additional employees.

TABLE OF CONTENTS

2 | Page

Background of the Company

The City Budget Office is a Government Agency under the City
Government of Butuan currently located in City Hall, Doongan, Butuan
City under the supervision of the Acting City Budget Officer Mr.
Armando A. Perez, Sr.
The

offices

objectives

are

to

prepare

the

annual

and

supplemental budget of the City through systems and procedures and

effective management allocation and control of the City expenditures.
It also controls the level of obligation, provides technical and staff
support to the offices of the City through consultative dialogue.
The

function

of

the

City

Budget

Office

includes

Budget

Preparation, which studies and consolidates budget proposal of various

operating departments; the Budget Authorization, which approves the
annual budget; the Budget Execution, which studies and evaluate
allotment requests and prepares appropriate recommendations; the
Budget Accountability, which compares and evaluates reports of
various departments against measures of performances/standards; and
lastly, the Budget Review, which determine whether the ordinance has

3 | Page

complied with the budgetary requirements and general limitations set

forth in the Local Government Code of 1991.
In order to cater to the peoples needs, the office is subdivided
into four divisions namely the General Government Services (GGS),
Social Services (SS), Economic Services (ES), and the Administrative
Staff (AS). The General Government Services, Social Services and
Economic Services, have the same flow of transaction but differ only in
what type of services they may fall pursuant to the New Government
Accounting System of the Commission on Audit. But when it comes to
the Administrative Staff, its work focuses on compiling records of
employees, different kinds of approved resolutions and memoranda,
approved budget memoranda, and different kinds of communications
to and from different offices in the city.

VISION STATEMENT
A customer-driven office that provides sound budgeting services
through well-trained personnel with systematic and strategic policies in
order to optimize the utilization of resources for citys development.

MISSION STATEMENT
We, the employees of the City Budget Office, with the help of
Almighty Father, adheres to provide sound budgeting services with

4 | Page

utmost dedication, determination and courage to serve the Public. So

Help Us God.

HISTORY
In 1987, the City Budget Office, together with the Office of the
City Accountant, was part of the City Treasurers Office because the
organizational structure at that time was centralized and it wasnt
really mandatory for the three offices to be separated. But through the
Republic Act No. 7160 Local Government Code of 1991, providing the
overarching framework of the Local Governance in the Philippines
which focuses on the local autonomy, decentralization, accountability,
and participative governance; the structure then changed.
Not later than 1991, this code had been completely implemented
including the separation of the City Budget Office and the Office of the
City Accountant from the City Treasurers Office. The reason why they
separated the three offices is to better verify the transactions related
to the said offices. Also, to have reliable, verifiable, and objective
information to be free from bias and to assure the veracity of reports
through the Check and Balance process. The City Budget Office was
separated first due to lack of availability of funds.
In the late 1980s, the different offices of the City Government of
Butuan were situated in one compound but had different buildings in
5 | Page

close proximity with each other. Last May 27, 2003, all the offices were
transferred in one building wherein it has four floors. They did this to
better accommodate the peoples concerns and to make transactions
with different offices easier to access.
In every department, there is an assigned Chief of Office who
mandates

and

oversees

the

transactions

of

their

respective

departments. In the City Budget Office, the very first City Budget
Officer was Mr. Pedro Monton, followed by Mr. Roberto FortunVillanueva, CPA. After Mr. Villanuevas retirement, in 1994, Mr. Danilo C.
Furia, CPA, MBA took over as the City Budget Officer up to present.

6 | Page

ORGANIZATIONAL CHART

7 | Page

INTERNAL AUDIT CHARTER

Mission
The mission of City Budget Office (CBO) Internal Audit Committee
(IAC) is to add value to the office by helping improve its operations
through independent, objective assurance and consulting activities
designed to accomplish their objectives and evaluate the effectiveness
of risk management, control, and governance processes.

Scope of Work
The scope of work of CBO-IAC is to conduct a comprehensive audit
of the various Office activities. It shall have the following functions:

Activities verifying the extent of compliance. This may involve

determining that accounting and budget procedures or other
policies

are

appropriately

being

followed;

implemented;

operating

procedures

governmental

rules

are
and

regulations are being complied with; performance targets are

being achieved; and other contractual obligations are being

met;
Determine the adequacy, effectiveness and efficiency of
existing procedures and personnel;

8 | Page

Verification and analysis of financial and operations data to

ascertain

if

management

information

system

generates

reports that are complete, accurate and valid; and

Functions of a protective nature, such as prevention and
detection of fraud or dishonesty; review of cases involving
misuse of agency property; and checking of transactions with
outside parties.

Accountability and Responsibility

1. Role of the Chief Audit Executive
The

Chief

Audit

Executive

(CAE)

shall

be

accountable

to

management (CBO) and the Mayor. He is responsible to:

Develop a flexible annual audit plan using an appropriate riskbased methodology, including any risks or control concerns by
management. The said plan will be submitted to the CBO-IAC for
review and endorsement to the Mayors Office for approval prior

to its implementation;
Implements the annual audit plan, as approved by the City

Budget Officer and the Mayor.

Provide annually an evaluation on the ampleness and adequacy
of the office's procedures for controlling its activities and dealing
with its risks in the zones put forward under the mission and

scope of work;
Issue periodic written reports to the Audit Committee and the
Mayor;
9 | Page

Report to the management and the Mayor significant issues

related to the procedures for controlling the activities of the
office, including potential upgrades to those procedures, and give
data concerning such issues through resolution;

Coordinate with, and give oversight of, other compliance, control,

and monitoring functions;

Maintain

an

expert

staff

with

adequate

learning,

skills,

experience, and expert accreditations to meet the requirements

of this charter by providing relevant trainings and continuing

professional education; and

Set up a quality affirmation program as basis of evaluation,
monitoring and improvement of all internal auditing activities
conducted.

2. Role of Internal Audit Staff

Each internal audit staff is accountable to the Chief Audit
Executive. He is responsible to:
a. Do the assigned audit tasks and keep regular reports and
updates to the Chief Audit Executive or at the earliest
opportunity as coordinated by the Chief Audit Executive;
b. Maintain independence and objectivity a priority in mind and
in appearance; and
c. Respect confidentiality of the information gathered and/or
obtained on all audit and consulting activities.

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Independence
To maintain independence and objectivity, the IAC staff will
present their reports specifically to the Chief Audit Executive. The Chief
Audit Executive will review the works of the staff which will then be
submitted practically to the IAC for conclusive review. A duplicate of
the report will also be given to the Mayors Office for reference.

Authority and Access

The Chief Audit Executive and IAC staffs are authorized to:

Have unrestricted access to all functions, records, property, and

personnel.

Have full and free access to the Audit Committees.

Allocate resources, set frequencies, select subjects, determine

scopes of work, and apply the techniques required to accomplish
audit objectives.

Obtain the necessary assistance of personnel in divisions of the

CBO where they perform audits, as well as other specific
administration from within or outside the office.

The Chief Audit Executive and IAC staffs are not authorized to:

Perform any operational obligations for the office or its affiliates.

Initiate or approve accounting transactions external to IAC.

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Direct the activities of any office employee not employed by IAC,

except to the extent such employees have been properly assigned
to auditing teams or to otherwise assist the internal auditors.

Records Ownership and Retention

Records and documents and other information derived during the
engagement are owned by the internal audit committee of City Budget
Office, therefore, this should remain under their control. For request for
access of the information by persons outside that committee, it should
be authorized by the Chief Audit Executive.

Proficiency and Training

The Chief Audit Executive shall routinely conduct trainings and
initiate seminars upon the approval of the management and the Mayor.
These trainings and seminars will help maintain the internal audit
departments competency and proficiency in the conduct of the audit
and consulting activities and to keep at standard with the developing
worldwide practices in internal auditing and to consistently grow in the
practice of the profession.

Standards of Audit Practice

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The Internal Audit Committee shall conduct the audit in

conformity with International Standards for the Professional Practice of
Internal Auditing.

Effectivity
This charter shall take effect on July 1, 2016 onwards.

Endorsed for Approval:

__________________________________________
Head of the Audit Committee

Approved by:

________________________________________
City Mayor

Audit Committee Member

Audit

Committee Member
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_______________________________________
Audit Committee Member

AUDIT REPORT

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A. Summary of Findings

1. Staff of
Administration
Division cannot
interfere with
the affairs of
General
Government
Services
Division,
Economic
Services
Division, and
Social Services
Division. (Based

Employee A of
Administration
Division
interfered with
the affairs of
General
Government

A Possibility of
Fraud

High Priority

Services
Division last
December
2015. (Based on
Observation)

on Interview)
Due to lack of
employees,
Employee C
2. Unauthorized

input data to

personnel

the FARM

cannot input

System

data to the

specifically

FARM System

ISDAP even

like ISDAP.

though that is

(Based on

not part of their

Interview)

division as long

Unauthorized
Access

High Priority

as he/she has
the knowledge
about it. (Based
on Observation)

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Below are the areas in the City Budget Office where the auditors find
unsatisfactory:
3. Whenever
the Acting City
Budget Officer
is absent, the
Designated
Chief Officer of
a division is
limited only to
sign/approve
purchase
requests and
obligation
requests of up
to P50,000.00.
No limitations
for payrolls.
(Based on
Interview with
the Acting City

Last December
2015, the
Acting City
Budget Officer
was absent and
the Designated
Chief Officer for
that day said
that he has no
limitations in

Unauthorized

Moderate

Access

Priority

High Priority

signing
purchase
requests,
obligation
requests and
payrolls. (Based
on Interview)

Budget Officer)
4. Employee

Last December

A possibility of

entertains day-

2015, Only the

fraud.

to-day

Chief Officer of

documents like

Division B was

purchase

present. The

requests,

Chief Officer

obligation

took over the

requests and

preparations of
16 | P a g e

documents like
payrolls and at
the same time,
the Chief
Officer of a
division put
his/her initials
on the prepared
documents.
(Based on
Observation)

purchase
requests,
obligation
requests and
payrolls. At the
same time,
he/she was the
one who
initialed those
documents.
(Based on
Interview)

5. If an
employee is no
longer part of a
division, his/her
account should
be taken out of
the FARM

Accounts are
not deleted and
can be used
again. (See

A possibility of

Moderate

fraud.

Priority

A possibility of

Moderate

fraud.

Priority

attachment)

System.
Since
September
6. The owner of
the account
can only access
that account.

2015, Employee
D used the
account of
Employee E.
(Based on
Observation
and Interview)
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B. Detail Discussion of the Findings

A. Inappropriate Segregation of Duties

HIGH PRIORITY

Observations
Criteria:

Staff

of

Business Impact

Administration

Division cannot interfere with the

affairs

of

General

Government

1. Confusion of work.

Services Division, Economic Services

Division, and Social Services Division.
Condition: Employee A of

2.

Can

get

access

to

restricted

information.

Administration Division input data to

the FARM System which is the task of
General Government Services

3. Overlapping of work.

Division last December 2015.

Recommendations

Management Response
Financial

1.

Hire additional employees.

constraint.

Better

if

the

vacant positions will be filled up

rather

than

hire

additional

employees.
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To have a manual which states

the
2.

job

description

of

each

employee, to comply with that

policy, and to strictly implement

During appointment, there is already

job

description.

However,

we

will

apply this recommendation in our

office.
that manual.
An approval from the Acting City This is okay but in case the Acting
3.

Budget Officer should be made City

Budget

is

absent,

the

prior to assigning that employee Administrative Officer can do the

to do the job.
approval.
A proper endorsement of work

4.

after that employee has done We

his/her

work

at

the

agree

to

apply

this

other recommendation in our office.

Division.

A. Inappropriate Segregation of Duties

Observations
Criteria: Subordinates of the Chief
Officer

entertains

MODERATE
PRIORITY
Business Impact

day-to-day 1. Confusion of work.

documents while the Chief Officer

signifies an initial for approval of
those documents.

2. Inconsistency of work.

Condition: An instance where A

subordinate was absent and the Chief
Officer of the Division took over the
preparation of the documents and at
the same, he/she signifies an initial

3. Possible mistakes or errors may not

be

discovered

and

might

be

disregarded.

for approval.
Recommendations
Management Response
1. Before the subordinate may take We have this but only when it is a

19 | P a g e

his/her absence, he/she must

submit an excuse letter duly
approved by the Administrative
Division.
In case of urgent absence, the
subordinate
2.

must

inform

the

Chief Officer through text or call

and submit the letter after that
day.
The Acting City Budget Officer

3.

must evaluate and reconcile the

documents

prepared

and

initialed by the Chief Officer.

4.

proper

monitoring

vacation

data

good

apply it in our office.

We

will

take

note

of

this

recommendation because this is for

record purposes of the Administrative
Division.
This is okay however it is case-to-case
basis. The Acting City Budget Officer
will

evaluate

and

reconcile

those

documents only when it involves big

Administrative Officer.

Observations
Unauthorized

input

is

recommendation so we are going to

B. Information System Discrepancies

cannot

This

amounts.
of This is correct. This is the task of the

employees.

Criteria:

leave.

to

HIGH PRIORITY
Business Impact

personnel
the

FARM

System like ISDAP.

Condition: Due to lack of
employees, Employee C input data to

1.

An

alteration,

changes,

deletion of data may occur.

2. Information may be accessed by
unauthorized personnel.

the FARM System specifically ISDAP

which is not part of their division as

3. Confusion of work.

long as he/she has the knowledge

about it.
Recommendations

and

Management Response
20 | P a g e

Financial
1.

constraint.

Better

if

the

vacant positions will be filled up

Hire more employees.

rather

than

hire

additional

employees.
Information system must have a
module in the FARM System that
2.

restricts access to people from

inputting data and a module
where people can input data like

3.

4.

5.

ISDAP.
Direct

supervision

of

This is the original plan however, the

development of the software/website
is still on-going.

the We will apply this recommendation in

employee who inputs data.

our office.
A reconciliation that what are
This is applicable but however we
recorded in the logbook were
disagree to this recommendation
also being input in the FARM
because this is time consuming.
System.
The Chief Officer must monitor
the logbook and the data that This

is

still

applicable

but

time

was being input in the FARM consuming to do.

System.

B. Information System Discrepancies

HIGH PRIORITY

Observations

Business Impact

Criteria: The owner of the account 1.

can only access that account.
Condition: Since September 2015,
Employee D used the account of

An

alteration,

changes,

and

deletion of data may occur.

2. Information may be accessed by
unauthorized personnel.
3. Confusion of work.

21 | P a g e

4. Threats to confidentiality.
Employee E.

5. A possibility of fraud.

Recommendations
1.

2.

Management Response

Implement policies that limit the The development of the software is

access to their system.
still on-going.
There must be a proper approval We
agree

to

of authority to use someone recommendation

apply
in

our

this
office

elses account by the Acting City because this is important for filing
Budget Officer.
purposes.
Passwords must be changed at This is very good but the Chief Officer

3.

least once a month or as often must also know the password beside
as possible.

the employee.

MODERATE

B. Information System Discrepancies

PRIORITY

Observations
Criteria: If an employee is no longer
part of a division, his/her account
should be taken out of the FARM

Business Impact
1.

An

alteration,

changes,

and

deletion of data may occur.

System.
2. Information may be accessed by
Condition: Accounts are not deleted

unauthorized personnel.

and can be used again.

22 | P a g e

Recommendations

Management Response

IT must delete these accounts to

1.

2.

avoid past employees gaining

still on-going.
access to their system.
If it cant be deleted, the IT must We will inform

the

IT

of

this

block those accounts that are recommendation because we want to

owned by past employees.
Constant
monitoring

3.

The development of the software is

apply this in our office.

of

electronic logs for transactions

entered, altered, or deleted.

This is the ideal thing to do however,

it is very time consuming.

MODERATE

C. Excess of Authority of Signatories

Observations
Criteria:

The

PRIORITY
Business Impact

Designated

Chief 1. Approval of request which are

Officer of a division is limited only to beyond

his

limitations

or

to

sign/approve purchase requests and authority given to him.

obligation

requests

of

up

to

P50,000.00 in case of the absence of

the Acting City Budget Officer and no

23 | P a g e

the

limitations for payrolls.

Condition: Last December 7-11,
2015, the Acting City Budget Officer
was absent and the Designated Chief

2. Approval of requests that lacks

Officer for that day said that he has

necessary requirements.

no limitations in signing purchase

requests, obligation requests and
payrolls.
Recommendations

Management Response

Reorient the Designated Chief

1.

Officer about his authority and We will apply this recommendation.

limitations.
The manual must also include
the limitations and authority of

2.

Designated Chief Officer in case

the Acting City Budget Officer is
absent. Strict implementation of

We

will

take

note

of

this

recommendation and apply it in our

office.

the manual.
A notification to the Acting City
3.

Budget Officer and an urget

response by him.

This is okay. We will apply this in our

office.

AUDIT PLAN

The internal audit team will perform an operational audit of City

Budget Office of Butuan from November 26, 2015 to January 27, 2016.
The purpose of the audit is to add value to the office by determining
24 | P a g e

the adequacy, effectiveness and efficiency of existing procedures and

personnel and helping improve its operations.

Background of the Company

The City Budget Office is a Government Agency under the City

Government of Butuan currently located in City Hall, Doongan, Butuan
City under the supervision of the Acting City Budget Officer Mr.
Armando A. Perez, Sr. The offices objectives are to prepare the annual
and supplemental budget of the City through systems and procedures
and

effective

management

allocation

and

control

of

the

City

expenditures. It also controls the level of obligation, provides technical

and staff support to the offices of the City through consultative
dialogue.
The

function

of

the

City

Budget

Office

includes

Budget

Preparation, which studies and consolidates budget proposal of various

operating departments; the Budget Authorization, which approves the
annual budget; the Budget Execution, which studies and evaluate
allotment requests and prepares appropriate recommendations; the
Budget Accountability, which compares and evaluates reports of
various departments against measures of performances/standards; and
lastly, the Budget Review, which determine whether the ordinance has

25 | P a g e

complied with the budgetary requirements and general limitations set

forth in the Local Government Code of 1991.
In order to cater to the peoples needs, the office is subdivided
into four divisions namely the General Government Services (GGS),
Social Services (SS), Economic Services (ES), and the Administrative
Staff (AS). The General Government Services, Social Services and
Economic Services, have the same flow of transaction but differ only in
what type of services they may fall pursuant to the New Government
Accounting System of the Commission on Audit. But when it comes to
the Administrative Staff, its work focuses on compiling records of
employees, different kinds of approved resolutions and memoranda,
approved budget memoranda, and different kinds of communications
to and from different offices in the city.

Objectives of the Audit

The internal audit team aims to:
a) To understand established organizational policies, procedures
and operational flow;
b) To determine whether the actual practices comply with the
office-wide established policies procedures and operational
flow;
c) To assess the efficiency and effectiveness of the operation;
and
d) To recommend actions for improvement.

26 | P a g e

To achieve the above objectives, the auditors relied on the

information gathered about the company- their Vision and Mission,
Goals

and

Objectives,

Policies

and

Procedures,

Flowchart

and

Organizational Chart.
The auditors also relied on direct observations of the day-to-day
operations in the City Budget Office, inquiry with the Acting City
Budget Officer, Head of every Division and some of their subordinates
and also to the walk-through test that was being conducted.

Scope of the Audit

27 | P a g e

Audit Time Table

(Intro)
Audit Procedures

Steps

Time

Assigned

Remark

Schedule

Auditors

Gather Information

Vision and Mission

Goals and

Objectives
Policies and

Procedures
Flowchart
OrganizationalChart

Brainstorming

November
26, 2015

December
5, 2015

Jonn
Janica

Complied

Rachel

All

Complied

All

Complied

Observe

Employee
Operation / System
(manual and

computerized)
Other relevant

December
9, 2015

persons
Interview / Survey

Heads and staff

Other relevant

persons
Testing

Procedures

Rica
December

Janena

16, 2015

Jonarissa

January 13,

Marjorie
Jonarissa

2016

Marjorie

Complied

Complied

28 | P a g e

walkthrough test
January 14,
Follow-up interviews

20-21,
2016

Jonarissa
Marjorie
Janena

Complied

Rica

January 27Drafting the

Operational Audit
Report

29 and
February

All

Complied

All

Complied

All

Complied

17-19,
2016

Submission to the City

Budget Officer of the

February

Operational Audit

24, 2016

Report for review

Finalization of
Operational Audit

February

Report (for submission

29, March

to the Subject

1-2, 2016

Professor)

Risk Assessment
The audited department is the City Budget office. The risk areas
are: (1) approval of the budget, (2) information system, (3) manual
operation in the budget office, (4) employees in the budget office, (5)
absences of the employees, (6) username and password.

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